MILAN: European shares were sharply higher on Monday, with a rebound in banking stocks and sharp gains among French telecoms stocks on M&A expectations underpinning the market.

The strong performance for European equities come after gains in Asia where the Nikkei surged more than 7 percent and a firmer yuan eased devaluation concerns.

By 0933 GMT, the pan-European FTSEurofirst 300 index rose 2.6 percent, after gaining 3 percent on Friday, while the euro zone's blue chip Eurostoxx 50 index was also up by 2.9 percent.

In spite of the rebound, the FTSEurofirst remains down around 12 percent so far this year because of worries over a global economic slowdown and concerns surrounding the health of Europe's banking sector.

"It's no surprise to see markets rebounding after excessive movements seen in the last few weeks," said Riccardo Ambrosetti, chairman of Italy's Ambrosetti Asset Management. "European equities have been particularly hit and we expect a faster recovery for battered financial stocks."

Bank sector stocks, up 3.5 percent, were among the top sectoral gainers, extending Friday's rebound, with sentiment helped by news that the European Central Bank (ECB) is in talks to buy bundles of Italian bad bank loans as part of its asset-purchase programme.

Shares in Dutch lender ING, Switzerland's Credit Suisse, Italy's Intesa Sanpaolo and France's BNP Paribas were all up by more than 4 percent.

French telecoms group Orange added 3 percent after a report said a deal to take over rival Bouygues could be presented on Tuesday. Bouygues was up 4.5 percent.

"This latest news reinforces our belief that French market consolidation will happen, and Iliad will greatly benefit from it," said Bryan Garnier in a note.

In a note JP Morgan said it remained a buyer of French telecoms, with a preference for Iliad and Numericable , noting how conolsidation would ease market pressure in the industry. Iliad and Numericable were up 3.5 percent and 6.9 percent respecitively.

Among the few fallers, French utility company EDF fell 1.9 percent after French daily Le Figaro said it may need a 5 billion euro capital hike and that 2015 net income could slump due to provisions and asses depreciations.

Today's European research round-up (Reporting by Danilo Masoni, editing by Tom Miles)